4 Expatriate Structures
This is the second of four in an article series entitled How to Structure Global Mobility Assignments, Expatriate Postings and Cross-Border Secondments. It was written by international employment attorney Donald Dowling with Littler Mendelson P.C.
Once an employer understands which globally mobile employees are and are not actual business expatriates, the next task is to slot each actual expat into the most appropriate expat category. That is, select the most appropriate expat structure. Expatriate structures take different forms at different multinationals, but ultimately all business expats fit into or among four broad categories: foreign correspondent, secondee, temporary transferee/localized and co-/dual-/joint-employee.
1. Foreign correspondent. A “foreign correspondent” expatriate remains employed and payrolled by the home country employer entity while working abroad, rendering services from afar for the home country entity (not for some local host country affiliate or business partner). Foreign correspondent postings are easy to set up because nothing changes other than the place of employment (and other than that the expat might start receiving expat benefits). The challenge is that foreign correspondent postings risk violating host country immigration and payroll laws. A foreign correspondent may need a visa sponsored by some host country employer, and host country payroll laws may require the employer to make reportings, deductions, withholdings and contributions to host country tax and social security agencies that the home country employer entity is not set up to make without a host country taxpayer identification number (even an outsourced payroll provider needs its customer’s local taxpayer number).
- Shadow payroll. One tool here is “shadow payroll” (also called “zero payroll” and “mirror payroll”)—some cooperating host country entity reports the foreign correspondent expat’s income to local tax and social security authorities as if it were the payrolling employer, and then that entity and the employer do an inter-company reconciliation each payroll period, behind the scenes, perhaps with the employer paying for the shadow payroll service.
2. Secondee. “Secondment” means “employee loan.” A seconded expatriate remains anemployee only of the home country employer entity but gets lent out to work for a host country entity, usually an affiliate or business partner of the employer. The secondee might get payrolled by either the home or host country employer (or both, via a “split payroll”). Usually the host country employer—which we might call the “beneficial employer”—reimburses wages and payroll costs to the home country “nominal employer.” Some secondees stay on the home country payroll while the host country entity issues a shadow payroll to comply with local payroll laws. But a true secondee is not a co-/dual-/joint employee, because a true secondee never gets privity of employment contract with the host country employer.
3. Temporary transferee/localized. An expatriate transferee or “localized” expat resigns from the home country employer, moves abroad and gets hired and payrolled by a new (host country) employer, often an affiliate or joint venture partner of the original employer but sometimes a host country services company like a local office of Globalization Partners, Adecco, Manpower or Kelly Services (or the expat might even become an independent contractor in the host country). The new host country employer usually extends retroactive service/seniority credit for past service with the home country employer and sometimes also pays some extra expat benefits—a so-called “local-plus” assignment.
While working in the new host country place of employment, a localized transferee expat renders services only for the new host country employer and does not retain privity of employment contract with the home country employer—other than perhaps an informal side letter or email outlining post-assignment repatriation expectations. The home country employer is not a co-/dual-/joint-employer because the expat formally resigned.
Of course, an expat transferee localization is only temporary. (A transferee who does not expect to repatriate is a “permanent transferee,” not a business expatriate. ) A localized expat (as opposed to a permanent transferee) expects someday to repatriate and re-localize back to the original home country location. A side-letter (or email) between the expat and the home country employer entity might memorialize this.
4. Co-/dual-/joint-employee. A co-/dual-/joint-employee expatriate is an expat simultaneously employed by two masters, the home and host country employer entities, essentially on a moonlighting basis. The employee works for two employers simultaneously, or else works a host country job actively while formally retaining status as “on leave” from the home country employer entity, with the home country employment arrangement suspended or “hibernating”—but not terminated. A co-/dual-/joint-employee expat may be payrolled by either the home or host country employer (or both, on a “split payroll”), or may be on a “shadow payroll” actually paid by the home country employer while the host country employer complies with its jurisdiction’s payroll laws.
- Intended co-/dual-/joint-employment. Ideally every co-/dual-/joint-employee expat arrangement gets structured overtly, with the expat either actively structured as an employee of both home and host country entities or else with the expat expressly on leave from the home country employer, leaving that employment relationship expressly “hibernating” but not severed. Sometimes the home and host country employers decide to use the co-/dual-/joint-employee structure to keep the expat enrolled in home country benefits programs or home country social security (say, under a social security totalization agreement certificate of coverage).
- Unintended co-/dual-/joint-employment. Too many co-/dual-/joint-employment expatriate arrangements get structured accidentally, either when an expat assignment is meant to be a secondment but the expat somehow enters an employment relationship with the host country employer, or else when an expat assignment is meant to be a temporary transfer (localization), but the parties fail to extinguish the home country employment relationship. A dismissed expat who ultimately wins the argument that he had served as an unintended co-/dual-/joint-employee could seek reinstatement or severance pay from the home or host country employer. These situations often get complex and expensive.
This is just the second in a series of four articles explaining how to structure global mobility assignments, expatriate postings and cross-border secondments. The next entry will deal specifically with what legal issues need to be considered when selecting the best expatriate structure based on . Those include:
- Payroll laws
- Permanent establishment
This piece is largely based on an article originally published by Littler Mendelson, P.C., who holds the copyright. It can be read here.
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